FTC to Enforce New Rules on Trade Schools

Citing widespread and serious abuses, the Federal Trade Commission yesterday voted tough new regulations governing the operations of up to 10,000 vocational schools across the country.

The action, aimed at ending abuses such as those alleged to have occured at the Lacaze-Gardner School here, could result in formalized pro-rata refund programs for school dropouts, a two-week cooling-off period during which a student can change his or her mind about going to school, and new disclosure rules requiring schools to graduate and what happens to them after graduation.

FTC Chairman Michael Pertschuk said that the federal government paid out nearly $83 ,illiom in loan guarantees for vocational education in 1976, and added that "the evidence in our proceeding indicates that many defaults are attributable to fraud and deception by vocational schools."

While 23 percent of governments education loans go to vocational schools, the same schools account for 56 percent of the defaults.

FTC records show that the FTC has over the years entered into "well over 100 litigated and consented orders in vocational cases." according to commission filings in connection with this trade regulation proceeding.

The regulation, which would go into effect on Jan. 1, 1980, is to be challenged in federal courts by industry trade associations, it was announced yesterday.

National Association of Trade and Technical Schools official Bernard Ehrlich said after the FTC vote that the mew rules "will severely limit education opportunities for the u derprivileged and disadvantaged students," and result in "substantial increases in tuition costs across the board."

Several industry sopkesman said yesterday that the FTC, by forcing vocational schools to make pro-rata refunds to students dropping out, will shift the burden of paying for the student bidy.

cOur only source of revenue is tuition," Erhlich said, "and we have commitments to pay teachers and other costs no matter how many students we have."

The number of dropouts at many vocational schools is high, in some cases up to 80 percent a year, according to industry officials.

Affecting schools teaching such topics as cosmetology, secretarial skills, computer programming and mechanical skills, the new rules will allow students to receive a pro-rata refund when they drop out. The refunds will be based on the number of classes attended. Students would, however, lose a $75 enrollment charge.

During the first 14 days of school, a dropout would receive a full refund.

The new regulations would alos requoire that schools advertising promises of "success" or future job opportunities also be required to disclose the job-placement rates and salary levels of graduates.

"Students whi are lured into a vocational course with false promises of better jobs higher salaries often drop out and then default on their loans," Pertschuk said.

FTC attorney Terry Latanich said tha the regulations wovted yesterday had "about 30 or so changes" from a version put before the commission 18 months ago. In most cases, he siad, the commission loosened certain proposed restrictions.

Latanich also denied industry charges that the rules would result in higher tution charges. "We just don't think that is true."

"As it is," he said, "students who drop out now essentialyy subsidize the rest of the student body when they don't get fair refunds."

The recently closed Lacaze-Gardner scnools, in Washington are under investigation by the U.S. Office of Education and the FBI for possible abuse of federal student financial aid programs and other problems.

The school grossed an estimated $7 million last year, about $2.1 million of which came from federal student aid programs. Authorities claim that much of the federal aid money was obtained for students who did not complete courses there.

The drop out rat of Lacaze-Gardner and other vocational schools provided a ripe area for fraud and abuse, FTC officials said yesterday.

Nearly half of the Lacaze-gardner students paid their $2,900 tuition with federal grants and loans, the Office of Education estimated, and about 83 percent of those students never finished the program.